MORE Blood in the markets... is the sky really falling?
Adrian Reid
I help analytical stock traders who are erratic, discretionary and uncertain transform into consistent, confident and rules based traders using proven systems not their emotions. DM for inquiries.
Just a quick update - the data in the charts and table below was up to date as of Friday's close... today the Nikkei is down a further 13% today when I last checked. This is a BIG deal, I am watching with interest what happens next!
In particular it will be important to see how the rest of the global markets respond... correlations could be very high here for a while.
This could very quickly decay depending on what sort of government response there is, so check your positions, make sure any trades that should be closed have been, check your leverage levels and ensure you are not going to get margin called.
Remember above all panic is what gets people in trouble. We need to act in line with our trading plan and trading systems.
You don't have to look far in the markets to find the RED over the last week - it is everywhere! Well everywhere except in the US utilities sector (up 4.3%) as people rush to lower risk areas of the markets. Have a look at the table below... then pause and take notice of your emotions and how you are feeling right now... then keep reading below the table because I have something important to show you.
Now that you have seen all the red in the market, let's get a little perspective. Below is a chart of the Nasdaq 100 index for 2024 YTD. This shows that Friday's low in the Nasdaq is the same level that back on the 15th of May was a new ALL TIME HIGH.
Traders have short memories, but if you want to stay in this game you need to keep things in perspective!
I am not saying it won't fall further (I think it probably will), but all I am saying is this (so far) is not the end of the world. In fact, the Nasdaq 100 index is only 10.8% down from it's all time high... hardly a big deal (so far).
But let's get a little more perspective. Here is the same market from the lows of the 2008 financial crisis to now. I know many traders have not been around that long, but I really want to show you that when things look like they are falling apart, it is important to zoom out. The market behaviour over the last couple of weeks is NORMAL and in face should be expected.
I also heard someone talking about how the drop on Friday was the biggest drop in the Nikkei ever. This is very misleading - I looked at data on the Nikkei 225 back to 1965, and Friday's drop was the second largest in point terms in that time... but today the Nikkei 225 is trading at over 35,000 so a 2000+ point drop is not that big in percentage terms.
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In fact, Friday's drop is only the 27th largest percentage drop in the Nikkei 225 from 1965 until today. So it is big (5.8% on a close to close basis), but certainly not the biggest.
So yes the markets are ugly right now, and it will probably get worse, but as traders we need to keep things calm and in perspective. So what are some important learnings for systematic traders out of the current situation:
Trading Tip: The Ultimate Guide to Shorting a Stock
Given what is happening in the markets at the moment, it seems timely to give you some additional training on shorting stocks so you can make money in a bear market in case it eventuates. This is my most important article and videos on short selling:
On the Home Front
Not very much going on this last week as we are keeping the house pretty low key as our son started his Year 12 Trial Exams today. Stephanie and I had a few sneaky coffee dates, walks by the water and I am reading a great novel about an Israeli Spy (One of Daniel Silva's Gabriel Allen books).
Have a great week. Remember - You're only one trading system away!
Adrian Reid
Founder - Enlightened Stock Trading